Lucie-Anne Rhodes, a Solicitor at Hamlins LLP, provides an update on some recent cases and legislation changes affecting the property sector.

Marks and Spencer plc v BNP Paribas Services Trust Company (Jersey) Ltd [2015] UKSC 72

The Supreme Court, in this long-awaited decision in respect of an appeal by Marks and Spencer (M&S), has confirmed that a tenant cannot recover rent for any period falling after a break date unless expressly written into the lease.

M&S’ appeal concerned its exercise of a tenant’s break clause contained in four separate leases of floors within an office block. The court considered only one of the leases, as the relevant provisions were the same for all four. The lease was granted for a term of years expiring on 2 February 2018, with an option for M&S, as the tenant, to terminate the lease on 24 January 2012. Rent was payable in advance on the usual quarter days and so the break date fell part way through the December 2011 to March 2012 quarter.

M&S exercised its right to terminate the leases pursuant to the break clauses. When the landlord refused to refund the rent paid by M&S in respect of the period from 24 January 2012 to 24 March 2012 (being the period after the break date), M&S issued a claim for recovery of it.

Amongst other things, the tenant argued that a term should be implied into the lease requiring the landlord to refund the rent paid for the period after the break date. This argument succeeded in the High Court, but was subsequently overturned by the Court of Appeal. The Court of Appeal and Supreme Court decisions confirm the position, which was well-established prior to this case, that rent in such circumstances can only be recovered where the lease contains an express apportionment clause.

This will be a welcome decision for landlords. Tenants agreeing new leases will be best advised to avoid agreeing break options that take effect part way through a rent period. Where the break date does fall part way through the rent period, an express apportionment provision should be included in the lease so that the landlord does not become entitled to keep any amounts paid for the period after the break date. Where existing leases are to be terminated part way through a rent period, tenants will need to budget for irrecoverable rent for any period falling after the break date.

Changes to bankruptcy thresholds

Pursuant to section 267(2)(a) of the Insolvency Act 1986, a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented, the amount of the debt or aggregate amount of all the debts is equal to or exceeds the bankruptcy level.

The ‘bankruptcy level’ set out in section 267(4) of the Insolvency Act 1986 has now increased from £750 to £5,000 and the revised threshold applies to all bankruptcy petitions presented to the court by creditors on or after 1 October 2015.

This change is likely to affect landlords with individual tenants (the threshold for issuing a statutory demand against a company is still £750) who are in arrears of less than £5,000, on whom the landlord might ordinarily serve a statutory demand to secure payment of the debt. In such circumstances, it will no longer be possible to serve a statutory demand, with the associated threat of bankruptcy, as a fast and cost-effective means of recovering the debt unless the debt is in excess of £5,000.

Arnold v Britton [2015] UKSC 36

This Supreme Court decision is a stark reminder of the fact that the courts will not interfere with a clear contractual agreement simply because it produces a commercially nonsensical outcome.

The case involved a number of tenants who had entered into leases between 1978 and 1991, most of which provided for fixed 10% increases in the level of service charge due each year. In the first year of the term, the service charges were £90 plus VAT per annum. However, the effect of the service charge provisions was such that some of the tenants would be required to pay service charges of £500,000 per annum by 2072.

The tenants argued that they should only be required to pay a fair proportion of the lessor’s costs of providing the services, subject to a cap on the amounts payable being the increase for that year as specified in the lease.

The Supreme Court rejected the tenants’ argument, holding that the service charge provisions clearly intended that the service charges would increase by 10% annually. In doing so, the court summarised a number of principles of contractual interpretation, in particular:

• commercial common sense and surrounding circumstances should not be used to undervalue the importance of the language of the provision which is to be construed;

• the clearer the natural meaning of the contractual wording, the more difficult it is to justify departing from it;

• commercial common sense is not to be invoked retrospectively;

• when interpreting a contract, a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party; and

• service charge clauses are not subject to any special rule of interpretation and will not be construed restrictively.

This case is a reminder of the importance of ensuring that contractual provisions are carefully negotiated and that the wording of the contract accurately reflects the parties’ intentions at the time the contract is entered into.

Right to rent scheme to apply to all residential landlords from 1 February 2016

From 1 February 2016, pursuant to the Immigration Act 2014, all residential landlords will be required to carry out certain background checks against potential new tenants, or face fines of up to £3,000. As part of the changes, landlords must do the following.

1. Check which adults will live in the property as their only or main home. A clear record of questions the landlord asks the tenant(s) and responses it receives should be kept to ensure a landlord has evidence that it complied with its obligations.

2. Obtain original documents that prove the potential tenant has a right to live in the UK.

3. Check the tenant’s documents in their presence to ensure that they are genuine and that they belong to the tenant.

4. Take and keep copies of the documents, and record the date on which the checks were made.

Landlords can be fined up to £3,000 for renting property to someone who isn’t allowed to stay in the UK. Further information about the scheme can be found here.

Important changes to the procedure for obtaining possession of residential property

On 1 October 2015, the Deregulation Act 2015 made the following changes to the procedure for terminating an assured shorthold tenancy (AST) in relation to property in England.

• It introduced a new prescribed form of notice (form 6A), which must be used when seeking to terminate an AST pursuant to section 21 of the Housing Act 1988 (section 21 notice).

• A section 21 notice cannot be served within the first four months of the commencement of the tenancy.

• Possession proceedings must now be issued within six months of the date of service of the section 21 notice.

• A landlord cannot now serve a valid section 21 notice where its tenant has made a written complaint about the condition of the premises or common parts, and (1) the landlord has not responded, or (2) the response is inadequate.

• There is no longer a requirement for a notice served in accordance with section 21(4)(a) to expire on the last day of a period of the tenancy.

• A landlord cannot serve a valid section 21 notice unless the tenant has been provided with:

  • a copy of the energy performance certificate in respect of the property;
  • a copy of the current gas safety certificate for the property; and
  • a copy of the Department for Communities and Local Government’s House to Rent: the Checklist for Renting in England (though this last requirement does not apply where the landlord is a private registered provider of social housing).

The Deregulation Act applies to new or replacement tenancies granted on or after 1 October 2015. The changes do not currently apply to tenants holding over under expired fixed-term tenancies.

Upper Tribunal decision on prescriptive easements favours landowners

In the recent case of Winterburn v Bennett [2015] UKUT 59 (TCC), the Upper Tribunal has held that signs erected in a car park which read ‘Private car park. For the use of club patrons only. By order of the committee’ were sufficient to prevent a prescriptive easement being acquired over a car parking area.

The car park in question belonged to a club, next to which there was a fish and chip shop. Although the ‘no parking’ signs were plainly visible, the owners of the fish and chip shop, along with their customers and suppliers, had used the car park for parking cars and both vehicular and pedestrian access for more than 20 years.

For an easement to be acquired by prescription, the party claiming the right must show that its use of the land in question has been as of right (i.e. ‘without force, without secrecy and without permission’). The Upper Tribunal in the present case held that the presence of the signs meant that the cars had been parked in the car park ‘by force’, and so no prescriptive right to park cars had been acquired.

However, as the signs did not expressly restrict pedestrian access, the Upper Tribunal held that a pedestrian right of way had been acquired.

This is a reminder to landowners to be aware of the risk of prescriptive rights being acquired, particularly where land is regularly accessed by the public. Where signs are used to try and minimise the risk of third party rights arising, they should be clearly and carefully worded and should be plainly visible by members of the public. Landowners should ensure regular visits to ensure unauthorised parking is not occurring, and/or consider alternative forms of restricting parking access, such as barriers and bollards.